Ghana Becomes First Country To Officially End MMT Experiment

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In recent years, there appears to have been some confusion among even erudite economists who have given helicopter money - a concept which effectively boils down to printing money and having a central bank fund one's deficit - the name of Modern Money Theory. There are just two problems: MMT is neither modern, nor monetary, nor is it a theory, although economists are delighted to define it as such, as it validates their worldview that somehow society can get richer if only people print more money.

We will note that some countries are smart enough to know that going down the money-printing route leads to disaster. We will also point out that it is not a western nation - all of those advanced countries are desperately printing money in hopes of sparking currency devaluation and at least modest hyperinflation - but an African country that is now the epitome of sound monetary practices.

On Friday, Bank of Ghana Governor Ernest Addison effectively shut down MMT in his country when he ruled out providing more loans to the government to help narrow the budget shortfall, saying it would put exchange-rate stability at risk (for those confused: virtually every single developed and developing central bank is currently doing just that - printing money to fund the government deficit).

The central bank shelved its zero-financing policy this year to lend the government 10 billion cedis ($1.7 billion) to help mitigate the impact of the coronavirus pandemic on the West African economy. The bank ended its explicit support of fiscal policy just as Ghana’s budget deficit is projected to reach 11.4% of GDP by the end of December, more than triple the initial target of 4.7% of GDP.

"The wide fiscal gap raises important financing issues," Addison said in a speech late Thursday according to Bloomberg. “Its financing should not be by recourse to central bank funds, as this will weaken the central bank’s ability to serve as the anchor of monetary- and exchange-rate stability."

“Going forward, difficult decisions will have to be taken to reorganize public finances and expenditure priorities, while exploring more sustainable revenue sources,” Addison said. And so one MMT experiment ends with a whimper, although since no other central bank is willing to to make "difficult decisions," it will be a while before Ghana's shining example is followed by other central banks.

Ghana's cedi has had its most stable spell in more than a decade this year, weakening 2.6% to the U.S. dollar. That’s even as the global health crisis drove Ghana’s ratio of debt to gross domestic product to 71% in September, the highest in four years. And now that wanton money-printing is out of the agenda, the cedi may soon well be one of the world's most valuable fiat currencies.